Billionaire activist investor Tom Sandell has accused the £1.7 billion transport group of a “premature” rejection of its break-up plans for the business.
His firm, Sandell Asset Management, which has built a 3.1 per cent stake in the business, broke cover last month with proposals to break up the business. It wants First to sell off the Greyhound coach business and spin off of the rest of its US operations, in favour of cutting debt and investing the funds in its UK bus and rail franchises, which include First Capital Connect.
The intervention comes after a grim year for First which has been struggling under a near £2 billion debt pile following its 2007 acquisition of US school bus business Laidlaw before recession struck. Its bus business has been hit with profit warnings and the firm was also forced into a £615 million rights issue to shore up its balance sheet last year, amid pressure on its credit rating.
First, which is already working on a turnaround plan, snubbed Sandell in December. The US firm today said it was “disappointed that the company has chosen to characterise the proposals as containing “structural flaws” and “inaccuracies”.” It also urged the company “to reconsider its premature rejection of the proposals”.
Sandell, a Swedish born New Yorker and former badminton prodigy who set up his own hedge fund in 1998, is a veteran of several activist campaigns in the US. He hinted at support from elsewhere on the shareholder register today as he added: “We believe shareholders strongly support our ideas, and have been encouraged by their reaction since our engagement with the company became public.”
Shares barely moved, easing 0.2p to 140.4p. Sources close to First Group said that “nothing had changed” and pointed out flaws in the proposals including the cost of spinning off businesses in the US and also potential opposition from pension trustees overseeing the company’s £250 million deficit.
This has almost certainly swelled further since the last valuation in 2010. A sell-off was considered and rejected at the time of the rights issue last year and new chairman John McFarlane is understood to have taken a fresh look at the plans and rejected them, it is understood. Analysts meanwhile struggle see the logic behind disposals, or obvious buyers for the businesses.
Sandell is sticking to its guns and believes there are “no major technical obstacles”. It hopes the board will change its mind and believes the plan can work in tandem with a sound turnaround plan.
It also warned First’s options may be stymied in future unless it acts fast: “We firmly believe that the company should take advantage of the current favourable market conditions to maximise the chance of success at both FirstGroup US and New FirstGroup in the long-term.
The favourable market conditions will not continue indefinitely, and the options available to the company now may not be available in the future.”